MGT 8803 Exam II Study Set UPDATED ACTUAL Questions
and CORRECT Answers
Terms in this set (124)
Shareholders only receive money after what suppliers have been paid
is done?
wages to workers have been paid.
interest to bondholders have been paid.
taxes have been paid.
, Capital Budgeting The process of determining exactly which assets to invest in
and how much to invest; also called capital expenditure
decision or capital investment decision.
Future Value (FV) the amount to which a cash flow or series of cash flows will
grow over a given period of time when compounded at a
given interest rate
FV Equation FVt = PV x (1+r)t
What is a present value? the amount of money you would need to invest today in order
to duplicate some future dollar amount
PV formula CFsubt/(1+r)^t
What does NPV measure? measures the value created for shareholders by an investment
project
What should we do if NPV > 0? Less than 0? If NPV > 0, then the project increases shareholder value and
should be accepted
If NPV < 0, the project destroys shareholder value and should
be rejected.
Are early cash flows for projects typically Negative
positive or negative?
Is replacement investment a tool for No
evaluating projects?
What are three tools for evaluating NPV, IRR, Discounted Payback Period
projects?
True or false - If capital projects are True
independent and consistent, the NPV and
IRR methods should result in "accept" or
"reject" decisions.
What does it mean when a project is Acceptance or rejection is independent of the acceptance or
independent? rejection of other projects.
What does it mean when a project is Can accept "A" or you can accept "B" or you can reject both of
mutually exclusive? them, but cannot accept both of them.
Payback Period the number of periods (usually measured in years) required
for the sum of the project's expected cash flows to equal its
initial cash outlay. In other words, the payback period is the
time it takes for a firm to recover its initial investment.
Internal Rate of Return the discount rate that makes the NPV of an investment zero
and CORRECT Answers
Terms in this set (124)
Shareholders only receive money after what suppliers have been paid
is done?
wages to workers have been paid.
interest to bondholders have been paid.
taxes have been paid.
, Capital Budgeting The process of determining exactly which assets to invest in
and how much to invest; also called capital expenditure
decision or capital investment decision.
Future Value (FV) the amount to which a cash flow or series of cash flows will
grow over a given period of time when compounded at a
given interest rate
FV Equation FVt = PV x (1+r)t
What is a present value? the amount of money you would need to invest today in order
to duplicate some future dollar amount
PV formula CFsubt/(1+r)^t
What does NPV measure? measures the value created for shareholders by an investment
project
What should we do if NPV > 0? Less than 0? If NPV > 0, then the project increases shareholder value and
should be accepted
If NPV < 0, the project destroys shareholder value and should
be rejected.
Are early cash flows for projects typically Negative
positive or negative?
Is replacement investment a tool for No
evaluating projects?
What are three tools for evaluating NPV, IRR, Discounted Payback Period
projects?
True or false - If capital projects are True
independent and consistent, the NPV and
IRR methods should result in "accept" or
"reject" decisions.
What does it mean when a project is Acceptance or rejection is independent of the acceptance or
independent? rejection of other projects.
What does it mean when a project is Can accept "A" or you can accept "B" or you can reject both of
mutually exclusive? them, but cannot accept both of them.
Payback Period the number of periods (usually measured in years) required
for the sum of the project's expected cash flows to equal its
initial cash outlay. In other words, the payback period is the
time it takes for a firm to recover its initial investment.
Internal Rate of Return the discount rate that makes the NPV of an investment zero
